economics

1. what can be deduced about an economy where no-one can be made better off without making
someone else worse off?
a_ firms succeed in maximising profits.
b_ production causes no external costs or benefits.
c_ the distribution of income and wealth is perfectly equal.
d_ the resources of the economy are allocated efficiently.

2 what is equivalent to social benefits?
a_ the amount that the government spends on social security benefits
b_ the benefit gained by society from total government spending
c the benefit to third parties from household consumption of a good
d the private and external benefits from household consumption of a good

3 the diagram shows the average cost (ac), marginal cost (mc), average revenue (ar) and
marginal revenue (mr) curves for a monopoly.
at which point will allocative efficiency be achieved?
price
b
ee nes ac
p, an: co sean noo 1 mc
: \mr / nar
o a, gg
quantity

4 how can the concept of marginal utility explain the shape of the downward sloping demand
curve?
a consumer tastes and preferences only change when their spending power increases.
b_ extra utility gained from consuming successive units of a good will fall continuously.
c_ satisfaction of consuming one more unit of a good is greater than the loss of money spent.
d_ total utility gained from buying more and more units of a good will continue to increase
indefinitely.

5 xy is the budget line of an individual consumer.
quantity of |x
good m
¥
o quantity of
good n
which changes could leave the position of xy unchanged?
consumer's 4 :
| | cmumere | price of good m price of good n
a decrease decrease increase
b decrease increase increase
cc increase increase decrease
d increase increase increase

6 the diagram shows an indifference map and two budget lines.
when the consumer's budget line shifts from bl; to bl2, consumption changes from point w to
point z.

good y
1,
zz
bl,
ie) good x

what do these changes indicate about the nature of goods x and y?
[eee [aoe

a normal inferior

b normal normal

cc inferior normal

d inferior inferior

7 small farmers supply all their rice production to a single buyer.
which term best describes this market structure?
a monopolistic
b monopoly
c monopsony
d perfect competition

8 a firm operating in an imperfectly competitive market decides to change its objective from sales
revenue maximisation to sales volume maximisation.
why might it have decided to do this?
increase short-run | maximise short-run | minimise short-run
profits market share average costs

a no no yes

b no yes no

cc yes no yes

d yes yes no

9 the diagram shows the marginal cost (mc), average cost (ac), marginal revenue (mr) and
average revenue (ar) curves of a profit-maximising, monopolistically competitive firm.
cost and
revenue mc
ac
ar
{@) 5
quantity
mr
based on its profit, and assuming no market growth, what is likely to happen to the demand for
this firm’s output in the long run?
a_ the short-run profit position will encourage other firms to enter the market and the firm’s
demand curve will shift to the left.
b_ the short-run profit position will encourage other firms to enter the market and the firm’s
demand curve will shift to the right.
c_ the short-run profit position will encourage other firms to exit the market and the firm’s
demand curve will shift to the left.
d_ the short-run profit position will encourage other firms to exit the market and the firm’s
demand curve will shift to the right.

10 a monopoly firm is producing output ot, and selling its product at price ow, thereby maximising
its profits, as shown.
ac
wi] conscacasnn so ac. i
. . _-~ ac-subsidy
price ! ea
“7
yi we mc
be
vircr epee oes
pe ar
(6) i :
quantity
mr
the government now decides that the firm’s operation generates positive externalities, and so
gives the firm a subsidy.
assuming that the firm continues to seek maximum profit, what will result?
a the firm continues to produce ot, and price remains at ow.
b_ the firm continues to produce ot, but charges a lower price.
c_ the firm increases production above ot, and reduces price.
d_ the firm reduces production below ot, and reduces price by the amount of the subsidy.

171 in many developed economies, large and small firms often exist side by side in the same
industry.
what is most likely to explain the survival of the small firms?
a they each offer a much wider range of products.
b_ they have a higher minimum efficient scale.
c_ they pay much higher wages to their staff.
d_ they provide a more personal level of consumer service.

12 what is generally associated with the principal agent problem?
a directors prefer company growth to greater shareholder dividends.
b managers ignore workers’ concerns about safety in the workplace.
c_ shareholders determine the price of products.
d_ workers go on strike against managers’ reorganisation plans.

13 a government wishes to reduce the negative externalities caused by the use of coal.
which policy should the government use?
a_ impose an indirect tax on the production of hydroelectric power.
b_ increase income tax.
c remove any restrictions on coal production.
d_ subsidise wind-powered electricity production.

14 what would be an example of ‘nudge theory’?
aa subsidy on fresh fruit to increase demand
b-aunit tax on unhealthy food to reduce demand
c banning all unhealthy food to reduce demand
d putting fresh fruit at eye level in shops to increase demand

15 when is a policy of income redistribution from rich people to poor people most appropriate?
a when control of demand-pull inflation is the priority
b_~ when equality is valued more highly than efficiency
c_ when monetary reward is the best incentive to risk-taking
d_ when the rich have higher marginal utility curves than the poor

16 which diagram correctly shows the relationship between the average product (ap) and the
marginal product (mp) of labour, given that the quantities of other factor inputs remain constant?
a b
average mp average
product, ap, product,
marginal marginal
product product
mp ap
9 labour 0 labour
cc d
mp
average average ap
product, product,
marginal marginal
product product
ap mp
0 labour o labour

17 wages in industry x are significantly higher than in indusiry y.
what could explain this difference?
a workers in industry y are highly mobile.
b_ trade union organisation in industry y is relatively strong.
c_ industries x and y compete with each other for workers.
d_ industry y has non-monetary advantages.

18 economic growth has both benefits and costs.

in which situation would living standards be judged to have definitely increased?

a ascountries became industrialised, economic growth led to a fall in hours worked, as well as
a rise in real incomes.

b_~ china had a huge rise in real gdp per head in the last 20 years but there was a decrease in
air quality in urban areas.

c_ economic growth in high-income countries has seen childhood obesity increase, but has also
seen increased resources devoted to its treatment.

d_ the 1990s saw a significant rise in real gdp per head in the us with only a relatively small
increase in the gini coefficient during the same period.

19 what is not included in national income accounts?
a agift by a parent to her daughter as a deposit on an apartment
b earnings of a part-time worker in a school dining room
c_ interest earned on savings accounts intended for retirement
d profits re-invested by a company to fund capital expenditure

20 a government wishes to attract foreign direct investment to assist the development of its
economy.
what is most likely to encourage this?
a_ improved health and safety standards for workers
b increased import quotas
c_ increased spending on infrastructure
d _ introducing a minimum wage

21 which indicator is least likely to be used when measuring the comparative economic
development of a country?
a adult literacy rate
b_ average life expectancy at birth
c level of real gnp per head
d - size of population

22 which term is given to short-term unemployment when people are changing jobs?
a cyclical
b _ frictional
c_ seasonal
d_ voluntary

23 the table shows data for an economy’s labour market.
es oe
number of people of working age 42.7
number of people of working age who are 22
actively seeking work, but are not working
number of people of working age who are 9.4
not actively seeking work
what is the economy’s percentage employment rate, to the nearest whole number?
a 5% b 23% c 73% d 95%

24 rapid economic growth is claimed by some to harm the environment.
which outcome would not harm the environment?
a the greater mobility of workers resulting from increased vehicle ownership
b the increased levels of income that reduce fertility rates and family size
c the relocation of workers from agricultural to manufacturing employment
d_ the use of improved technology to access previously inaccessible natural resources

25 the diagram shows an increase in both aggregate demand from ad, to ad2 and aggregate
supply from as, to aso.
as, as,
general
price
level
peon ad,
pig) nad,
e) y,y,  y3y,
real gdp
what shows the output gap after the increase in ad and as?
a ysy2 b yy3 c y2y3 d y3y4

26 which statement would be associated with keynesian economic theory?
a achange in the money supply is the main determinant of the rate of inflation.
b when unemployment falls below its natural rate, there is upward pressure on prices.
c_ total spending in the economy affects real output and employment in the short run.
d wages and prices are flexible so output and employment will always return to its equilibrium
rate.

27 in aclosed economy with no government sector, the multiplier shows the impact of a change in
a consumption on investment.
b_ investment on national income.
c national income on consumption.
d national income on investment.
nnn ee et mc

28 in year 1, countries x and y are each in balance of payments equilibrium. in year 2, country x, an
exporter of oil, raises the price of its oil, which increases its foreign earnings by $500m, half of
which is deposited with banks in country y.

country y is an important buyer of x’s oil and the price rise increases its foreign expenditure by
$400m.
other things remaining equal, what are the total currency flows for x and y?
| | xm) y ($m)
a +150 -150
b +150 —400
cc +250 -150
d +250 —400

29 what does the laffer curve show?
a the relationship between the rate of inflation and the rate of unemployment
b the relationship between the rate of interest and the speculative demand for money
c the relationship between tax rates and the amount of tax revenue collected by governments
d_ the relationship between how two goods can be produced in an economy with given
resources

30 the table shows key macroeconomic indicators for four countries in 2018.
see omer sa es
(% change in (% change in cpi balance
gdp per annum) isis i) per annum) (% of gdp)

argentina -6.2 9.1 50.7 4.8
china 6.4 3.8 1.5 0.4
italy 0 10.7 0.9 2.6
united states 3.0 3.8 15 -2.4

what can be concluded from the table?

a countries with current account surpluses had low unemployment rates.

b_ countries with high economic growth rates had high inflation rates.

c_ countries with low economic growth rates had high unemployment rates.

d countries with positive economic growth rates had current account deficits.

Solve 9708_m22_qp_32